Android critically damaged by .com thinking

A lot of folks are scratching their heads trying to figure out why Android for smartphones seems more successful than even Apple's amazing iPhone, while Android Tablets are failing one after the other.

The answer is a combination of issues, including the limitations placed on Apple by the company itself and the carriers. Then there is Google’s financial model which I don’t believe is viable, or even legal (predatory pricing), for them long term.

From litigation, to an inability to generate cash from apps, the Android ecosystem is clearly failing, and I think it is failing by design.

I believe this is a problem that evolved from the failed .com thinking, meaning everything can be paid for by advertising. Well, we already saw how the advertising paradigm turned out.

Let’s talk about that.

The Mature Business Model

One of the big trends over the last decade is to push P & L (Profit and Loss) responsibility down to working groups. This allows managers better control over their business, shifts money to the groups making the most profit, and forces hard choices on what to spend that money on.

This also puts a sharp focus on customer satisfaction, because customer acquisition costs are so high. Dissatisfied customers have a habit of cutting spending, charging back unexpected costs, and shifting to other suppliers - all of which adversely impacts the financial viability and profit based performance reviews of the group.

In other words, unhappy customers lead to minimized or cancelled bonuses and raises. In addition, a significant amount of the corporate burden, along with costs attributed to being part of a large company are artificially allocated - making this effort more difficult. Still, at least the revenue side is, generally, distinct.

Why .COM Doesn’t Work

In Google’s advertising revenue model the funds are allocated as well, because they give products like Android away. Since all the money is generated by advertising, how much are the folks doing ad management and search entitled to, versus the people managing products or platforms?

Why do you need to keep customers happy, (and who exactly is the customer?), since the consumer isn’t paying Google anything? In theory, the advertiser is the customer, but they have no real say about what goes into Android.

More importantly, because the revenue doesn’t have a hard link to the effort, Android tends to be managed as a cost center. This means that every effort is made to contain costs, which is why Google hasn’t tried to acquire much related intellectual property, choosing instead to sit on the sidelines as licensee after licensee has been sued.

Obviously, Mountain View doesn’t have much interest in keeping those licensees whole, nor does Google have the funding to do so even if it wanted to. Sure, there is being frugal, which Apple does aggressively to manage its costs, but not at the expense of customer satisfaction.

Then there is being cheap. Case in point: Google’s savings typically result in incomplete products and excessive litigation. There is every likelihood that once the cost of the litigation is factored in Android won’t even be profitable - which is obviously the downside to being cheap.

Wrapping Up: Google Should Charge for Android

If you look at the Google product model, it is more similar to an allowance you get for mowing the lawn than a mature business model.

You have the parents who control the money coming in from advertising and you have the kids all fighting for a share of it. Customer satisfaction rarely matters in allowance situations either, as it’s not like your parents will fire you or replace you.

Also, under this model, Google appears to be clearly selling Android for less than it costs and they are just short of being named a monopoly. That’s called predatory pricing and may eventually turn out to be illegal. But the big reason Google needs to start charging for Android is so that the teams building the product focus back on customer satisfaction, marketing, and IP acquisition so they can build better solutions.

Yes, free does bypass the steep barrier to market entry, but what’s the point of selling crap? Granted, the smartphone arriers are doing a nice job of keeping Google from totally screwing up. But with tablets there are (thus far) a limited number of carriers, leaving Google alone in finding a way to turn Android into a viable business.

Strangely enough, Android would likely be cheaper - once all costs are factored in - if Google charged for the OS instead of giving it away for free. The advantage to such a paradigm? Happier customers.

You know, the .com stuff really didn’t work for physical products and we don’t need to keep learning this lesson on the software side of things.

Rob Enderle is one of the last Inquiry Analysts. Inquiry Analysts are paid to stay up to date on current events and identify trends and either explain the trends or make suggestions, tactical and strategic, on how to best take advantage of them. Currently, he provides his services to most of the major technology and media companies. The opinions expressed in this commentary are solely those of the writer.